Economists as Experts: Overconfidence in Theory and Practice

Abstract

Drawing on research in the psychology of judgment and decision making, I argue that individual economists acting as experts in matters of public policy are likely to be victims of significant overconfidence. The case is based on the pervasiveness of the phenomenon, the nature of the task facing economists-as-experts, and the character of the institutional constraints under which they operate. Moreover, I argue that economist overconfidence can have dramatic consequences. Finally, I explore how the negative consequences of overconfidence can be mitigated, and how the phenomenon can be reduced or eliminated. As a case study, I discuss the involvement of Western experts in post-communist Russian economic reforms.

Keywords: overconfidence, calibration, economists, experts, public policy, Russian reforms

JEL Classification: A11, H00, O00, P20